Marathon earnings slide steeply

Published 5:30 am, Wednesday, April 24, 2002

Marathon Oil Corp.'s first-quarter results took a beating from weak refining margins in the first three months of the year, and the other major oil companies are expected to follow suit.

Even Exxon Mobil reported a drop in profits because of the squeeze at the refinery.

Marathon reported an 87 percent slide in earnings for the first quarter because of a loss at its refining joint venture, the first such loss since that unit was created in 1998.

The refining joint venture, Marathon Ashland Petroleum, had a $51 million operating loss, compared with an operating profit of $276 million in 2001's first quarter. Marathon owns 62 percent of the operation with Ashland.

The Houston company said it lost money there because the price of refined products sold by the venture failed to keep pace with surging crude oil costs during the quarter.

All of the major oil companies are expected to report decreases in first-quarter operating profits from refining and marketing. Exxon Mobil also reported an operating loss in its refining business on Tuesday.

"It was a pretty bad quarter," said Tyler Dann, oil analyst with Bank of America Securities in Houston. "Things have already begun to pick up, though, and we expect them to continue to improve in the second quarter."

The narrowing of the price differential between sweet and sour crude oil during the first quarter also hurt refining and wholesale marketing profitability when compared with the same period last year. Refiners able to process sour crude usually make higher profits when they are able to purchase sour crude at a sharp discount to sweet crude.

Refining profit margins collapsed during the winter under a combination of a weak global economy, mild weather that reduced natural gas sales in Europe, and sluggish jet fuel sales because of the slowdown in travel.

The combination of higher crude oil prices and thinner refining and marketing profit margins created the industry's worst conditions since the mid-1980s.

Marathon reported net income of $67 million, or 22 cents per share, on revenues of $6.45 billion. That compared to net income of $500 million, or $1.62 per share, on revenues of $8.72 billion.

Excluding special items, the Houston oil company had first-quarter net income of $27 million, or 9 cents per share. Analysts had expected the company to earn 15 cents per share, according to estimates compiled by Thomson Financial/First Call.

The company's worldwide exploration and production segment had first-quarter operating income of $165 million, compared with $600 million in the first quarter 2001. The company said the decrease was due to lower natural gas and oil prices and higher dry hole expenses.

Marathon's first-quarter oil and gas production averaged 424,000 barrels of oil equivalent per day. It said the figure was in line with expectations and that it is on track to achieve its 2002 production target of about 430,000 barrels per day.

Marathon's shares closed Tuesday at $29.42, down 3 cents.

Irving-based Exxon Mobil said Tuesday it earned $2.09 billion, or 30 cents per share, in the first quarter, compared with $5 billion, or 71 cents per share, in the period last year. Excluding continuing costs from the 1999 merger of Exxon and Mobil, the company said it would have earned $2.15 billion, or 31 cents per share.

That was far short of the 39-cent average forecast among analysts surveyed by Thomson Financial/First Call and less than half the first-quarter record of $5.05 billion, or 72 cents per share, last year.